The Future of Blockchain: How Modularity is Revolutionizing the Industry

The scalability trilemma has long plagued the blockchain industry, forcing projects to choose between security, decentralization, and scalability. But what if there was a way to have it all? Enter modular blockchains – the key to unlocking unprecedented scalability without compromising on the core principles that make blockchain technology so revolutionary. Let’s look at modularity, its importance, and some projects developing in this space. 

Every blockchain has four distinct components or layers: execution, data availability, settlement, and consensus. The execution layer is where applications reside and computations are facilitated and is typically what most people think of when they think of a blockchain. Data availability is the layer where the actual transaction data is stored and proven to be available to download, serving the important role of allowing anyone to verify that transactions are being executed correctly. Consensus is the mechanism by which a universal ordering of transactions is created and is typically intertwined with the role of data availability to ensure that transactions are stored and ordered correctly. Finally, the settlement layer is an optional layer where proofs of transaction execution or interactions between different chains can be stored, and is how cross-chain interoperability can be seamlessly enabled. These four components work together to create a distributed database that executes transactions.

One blockchain handles all four of these functions in a monolithic architecture like Solana. Though this was previously the approach Ethereum took, the blockchain quickly became congested with too many transactions, causing long wait times and high fees. Consequently, Ethereum began to modularize its stack with the help of Layer 2s, a scaling mechanism that effectively creates an execution layer to live on top of the Ethereum blockchain. Each L2 has its own application ecosystem and liquidity and posts its transaction information to Ethereum, which acts as both the data availability/consensus and settlement layer. 

Though this solution has worked well for Layer 2s like Arbitrum, Optimism, and ZKSync, especially with the release of the blob storage type in the recent Ethereum Dencun upgrade that makes data availability 10-100x cheaper for L2s, there is still room for further efficiencies. Celestia, a recently released chain focusing on data availability and consensus, offers even cheaper data availability storage for L2s, which can use Ethereum for settlement alone and Celestia for data availability. Other DA solutions, including EigenLayer’s EigenDA and the NEAR blockchain, offer additional alternatives for L2s to consider.

The benefit of different rollups sharing a settlement layer is that they can easily interoperate with one another, as all messages and transaction proofs are ultimately posted to the same place. There are other projects outside of the Ethereum ecosystem taking advantage of modular constructions to create ecosystems of rollups that settle to one chain and can interoperate with one another. For example, Dymension is a settlement layer using Celestia for data availability that makes it easy for any project to create their own RollApp, an application-specific Layer 2 that settles to Dymension and can interoperate with other RollApps. This model is similar to Polkadot or Cosmos, two interoperability projects where the Polkadot and Cosmos chains act as hubs for interoperability, while other blockchains can “plug in” and use these main chains to interact with others. However, Dymension’s key differentiator is that it removes the need for other chains or applications to build up their own network of validators – a costly and time-consuming process that adds another security vulnerability. 

Another project, AltLayer, hopes to accomplish a similar feat by allowing projects to build extremely customizable rollups using several different protocols to create the ideal modular stack. 

Though modularity is still in its infancy, the concept of separating different components of a blockchain into their most primitive parts to improve efficiency and customizability has proven extremely enticing to developers and investors, who have been allocating money and effort into these ventures. Since Dymension and AltLayer only recently launched, it is too early to tell if they will be successful with hundreds of RollApps and rollups building using their services. Ethereum has also begun embracing its role as a settlement, DA, and consensus layer, leaving the execution to Layer 2s with their greater efficiencies. All of these trends and developments bode well for the popularity of modular architecture, and it's very likely that the future of blockchains will follow this path of greatest efficiency.

By Lincoln Murr

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